| dc.description.abstract | This study examined the impact of central bank intervention on the profitability of
technical trading rules. The study period was from July 1, 2007 to June 30, 2012. The
study employed simple moving average rules with and without interest rate cost. Data
was analyzed with central bank intervention data then the intervention data were removed
and the data analyzed again. Then paired sample t-test was applied to profits with and
without interest cost and to profits with and without central bank intervention.
The general result that central bank intervention in the market reduces the profitability of
technical trading rules is interesting. This result means that central bank intervention in
the market can reduce speculation in the market. However, this can only be the case when
the profits after intervention are not significant. As the results demonstrate above, indeed
profits decline but they are still significant. Therefore central bank intervention has not
been successful in eliminating speculation in the market.
The results also show that central bank intervention reduces the volatility of technical
trading profits. Therefore, when the central bank intervenes in the market speculators
earn relatively low profits simply because exchange rate volatility has declined. This
finding is supported by not only a decreased standard deviation but also a lower kurtosis.
The impact of central bank intervention in the market is only felt at the monthly trading
interval. Thus, intervention in the foreign exchange market does not significantly reduce
profitability of technical trading rules and hence speculation. Thus, the foreign exchange
market is subject to large exchange rate movements with or without intervention by the
central bank. The results show that including interest rate costs does not eliminate the
profitability of technical trading. Also technical trading appears more profitable during
periods of high volatility.
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